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Published on 18/06/2026 – 13:20 GMT+2•Updated
13:35

The Bank of England left its benchmark interest rate unchanged at 3.75% on Thursday, extending a pause that began in December 2025, as policymakers weighed the inflationary fallout from the Iran war against signs of resilience elsewhere in the economy.

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Governor Andrew Bailey and fellow Monetary Policy Committee members were widely expected to keep rates on hold and maintain a broadly neutral stance on future policy moves.

The decision came a day after official figures showed UK inflation holding steady. Consumer prices rose 2.8% year-on-year in May, unchanged from April and below economists’ expectations of 3.0%, leaving the headline rate at its lowest level since early 2025.

However, the stable reading masked diverging trends beneath the surface. Transport costs accelerated sharply to 6.8%, driven by higher fuel prices and rising air fares, while food inflation eased to 2.2% and housing costs continued to moderate.

Though inflation remains above the bank’s target of 2%, the figure raised hopes that the upward pressure on prices emanating from the spike in oil and gas prices after the start of the Iran war on 28 February may have been less than anticipated.

Andrew Bailey, the bank’s governor, said the recent fall in oil prices has been “encouraging” while noting they are still higher than before the war.

“Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline,” he said. “The Bank’s job is to make sure that doesn’t turn into sustained inflation above our 2% target.”

Analysts also cautioned that inflation could still accelerate later this year, as higher household energy bills feed through to prices. Lindsay James, investment strategist at Quilter, said: “Whilst inflation was below expectations in May and currently under 3%, it is still likely to jump closer to 4% later in the year due to the coming impact of a higher energy price cap.”

James added that while oil prices have retreated from recent highs, they remain above last year’s levels, suggesting underlying inflation pressures have not fully disappeared.

The decision to hold the key interest rate was not unanimous, with two of the nine Monetary Policy Committee members voting for a quarter-point rate increase, reflecting concerns that higher energy costs could still feed through into broader inflation pressures.

A labour market losing momentum

Thursday’s labour market release painted a mixed picture.

The unemployment rate dipped unexpectedly to 4.9% in the three months to April, down from 5.0% in the first quarter, yet payrolled employee numbers fell over the period, pointing to an underlying loss of momentum even as the headline jobless rate improved.

Wage growth, a metric the Bank of England watches closely for signs of persistent price pressure, held firm, with regular pay excluding bonuses rising 3.4% on the year.

“The labour market is still continuing to lose momentum, with the latest figures showing a further cooling,” stated Richard Carter, head of fixed interest research at Quilter Cheviot.

Sanjay Raja, chief UK economist at Deutsche Bank, struck a similar note, cautioning that “it’s clear that the labour market is not out of the woods yet,” though he added that the mixed data buys the committee more time to wait and see how the economy evolves.

The combination of cooling headline inflation, a softening jobs market and still-robust pay growth underscores the bind facing the committee. Strong earnings keep alive the risk of so-called second-round effects, where higher wages feed back into prices, even as hiring loses steam.

BBC expert Steve Fletcher was given the task of restoring a sentimental item on the latest episode of The Repair Shop.

Emotions were at an all-time high during The Repair Shop as BBC’s Steve Fletcher and Dominic Chinea welcomed Robin into the workshop.

The guest had a large globe with him, which he explained was a ‘world clock’ and was built by his great-grandfather.

He commented: “It’s based on a grandfather clock mechanism. The idea is that the clock makes the globe rotate once every 24 hours. Then, using the numbers on the ring around the equator, you can see what the time is anywhere in the world.”

The BBC stars were blown away as they both called it ‘amazing’ before Robin confessed that he’s never known it to work in his lifetime.

Curious, horologist Steve asked if his great-grandfather was a clock-maker, as the guest explained that he wasn’t, he had been a mechanical engineer, but made the item in his spare time in the 1930s after retirement.

He added: “There’s a little newspaper cutting in here, according to the newspaper it’s supposed to chime every half hour. It took him five years to perfect.”

Sadly, Robin shared that his great-grandfather died when he was one year old, but he has memories of the item in his grandad’s dining room.

When asked what he wanted them to do with the unusual clock, Robin stated the idea would be to get it working, which is something his own father had wanted to do but never was able to.

He added: “If he’d have seen it working, I think it would have really been special to him if I could get it working now, in his memory, but also, grandfather and great-grandfather before that. Just to keep the family legacy going, as it were.

In the end, after the item was worked on by both Steve and Jonathan Wright, it was time for Robin to return to see the final restoration.

When the globe was revealed, which the experts managed to get working once again, Robin was blown away. He commented: “Wow! Well, it looks gorgeous, it really does look gorgeous. I’m… I am stunned, I really am stunned. Thank you. That’s a lovely sound, isn’t it?”

When Steve turned the clock strike on, Robin laughed as he struggled to hold back his emotions. He added: “Wow, that is so sweet. Sorry. I’d have loved my dad to have seen it and heard it. He’d have been thrilled. It’s really, it is emotional.

“Extremely emotional, but it’s magical, fabulous. We shall treasure it until it’s time to hand it on to the next generation.”

Steve added: “It’s been a real great challenge, so thank you very much for bringing it in.

The Repair Shop is available to watch on BBC iPlayer.

Yariv Oppenheimer told Al Jazeera that Israeli PM Benjamin Netanyahu has incentives to escalate tensions with Iran and Hezbollah but is constrained by US President Donald Trump and US interests. He said Iran’s June 7 response was a warning, not a push for war, and doubts Trump would allow major Israeli retaliation.